Park East project dropped

$150 million Palomar plan included hotel, high-end condos

The plunging demand for downtown condos and the credit crunch are behind Gatehouse Capital Corp.’s decision to pull the plug on a $150 million project in the Park East area on a county-owned parcel bordered by W. Juneau and W. McKinley avenues and N. Old World 3rd and N. 4th streets. The block is largely vacant. Credit: Jack Orton

Efforts to transform the moonscape of Milwaukee's Park East area into condos, hotels and stores took a giant leap backward Tuesday, with Gatehouse Capital Corp. dropping its $150 million Palomar project.

The proposed development, featuring 66 high-end condos and a 175-room Kimpton Palomar Hotel, was planned for a county-owned lot, bordered by W. Juneau and W. McKinley avenues and N. Old World 3rd and N. 4th streets. The block is vacant, except for a former Gipfel Brewery building and the empty Sydney Hih building.

The plunging demand for downtown condos and suffocating credit markets were the main culprits in the 22-story project's demise, Marty Collins, Gatehouse chief executive officer, said in a statement.

That makes it more difficult for Milwaukee County officials to find developers for that lot and other blocks in a 16-acre strip along downtown's northern edge. The county-owned strip, created when the Park East Freeway was torn down, is the heart of the larger 64-acre Park East redevelopment area.

This marks the second project to be canceled on the strip. Just one lot has been sold, but that tract's project has been delayed indefinitely.

Some developments are being built on privately owned parcels in the larger Park East area. Those include the 160-room Aloft Hotel, overlooking the Milwaukee River north of W. Juneau Ave., and The North End, with 83 riverfront apartments on N. Water St., south of E. Pleasant St.

But bigger developments, such as the Palomar, are being delayed throughout the country, said Mark Eppli, a Marquette University finance professor.

"Capital is the elixir of capitalism," Eppli said. "And capital is being crushed."

So, the county-owned strip - consisting mainly of large tracts - remains a high-profile eyesore. About the only people who've made money there were the scammers who illegally parked cars on one of the lots last month.

Gatehouse's announcement surprised county officials. County Executive Scott Walker couldn't be reached for comment. County Board Chairman Lee Holloway, in a statement, said it showed the need for a federal economic stimulus package to help create jobs.

In November, the board and Walker extended Gatehouse's purchase option for one year after Gatehouse said the nation's frozen credit markets had caused delays.

As market and credit conditions worsened, Gatehouse unsuccessfully sought more financial assistance from city officials, Collins said in his statement. The project couldn't happen without more city cash, he said.

Neither Collins nor Department of City Development officials would say how much additional money Gatehouse wanted. City officials last summer were considering about $2 million in financial help. That money would have been repaid through the Palomar's property taxes.

Market demand will determine the pace of Park East development, city Development Commissioner Rocky Marcoux said in a statement. He said city officials will "continue to do our part to ensure that it's an attractive development opportunity."

Meanwhile, another county-owned parcel, between N. Milwaukee St. and N. Broadway and E. Lyon St. and E. Ogden Ave., was to be the site of 175 housing units and 185,000 square feet of commercial space. But Chicago-based RSC & Associates dropped those plans last summer.

Just more than a year ago, the county sold another parcel to RSC. The firm hopes to build a 122-room Hyatt Place boutique hotel, a 102-room Hyatt Summerfield Suites extended-stay hotel, 105 apartments and 6,900 square feet of retail space on a block bordered by N. Milwaukee, N. Jefferson and E. Lyon streets and E. Ogden Ave.